Meeting Summaries and Observer Notes

IASB September 2007

The IFRIC continued its discussion of how an entity should account for non-cash distributions to its equity holders in their capacity as equity holders.

At its meeting in July 2007 the IFRIC asked the staff to restructure the analysis by focusing on how an entity should measure dividends payable in accordance with IFRSs.

At this meeting, the staff presented papers considering how an entity should account for non-cash distributions from the time it recognises a dividend payable to the time it settles that liability.

The IFRIC decided that:

accounting for all dividends payable should be determined by one standard, regardless of the types of the assets to be distributed. Among the IFRSs that deal with how liabilities should be measured, the IFRIC concluded that the most relevant standard was IAS 37 Provisions, Contingent Liabilitiesand Contingent Assets. In accordance with IAS 37 an entity would be required to consider the fair value of the assets to be distributed in determining the best estimate of the dividend payable.

when an entity makes the distribution that settles the liability and results in its losing control over the assets distributed, any difference between the carrying amount of the liability for the dividend payable and the carrying amount of the assets distributed should be recognised in comprehensive income.

no exceptions should be made to the requirement that all dividends payable should be measured in accordance with IAS 37.

In addition to the decisions it made at its July 2007 meeting, the IFRIC decided that the scope of the interpretative project should:

n not include distributions that involve entities under common control; and

n not address how to account for any difference between the carrying amount of the dividend payable and the adjustment to the non-controlling interest in the consolidated financial statements when an entity distributes ownership interests of a subsidiary to its equity holders but retains control over the subsidiary after the distribution. The revised IAS 27 Consolidated and Separate Financial Statements will address this issue.

In addition, the IFRIC concluded that the project should not address when an entity should recognise a dividend payable. The IFRIC noted that IAS 37 and the Framework for the Preparation and Presentation of Financial Statements set out requirements as to when an entity should recognise a liability.

The IFRIC also considered whether an entity should apply IFRS 5 Non-current Assets Held for Sale and Discontinued Operations to non-current assets to be distributed. On the one hand, the IFRIC noted that the wording in IFRS 5 suggests that IFRS 5 only applies to non-current assets (or disposal groups) that will be sold. On the other hand, the IFRIC acknowledged that the disclosures required by IFRS 5 would be useful to users of financial statements, especially if the assets to be distributed were a discontinued operation. The IFRIC supported the latter view but noted that it would require amendments to IFRS 5.

The IFRIC asked the staff to bring back to the November 2007 IFRIC meeting:

a draft Interpretation that reflects the decisions that the IFRIC has made so far;

a draft of potential amendments to IFRS 5 that the IFRIC could recommend to the Board; and

a paper focusing on whether, when an entity makes the distribution, any difference between the carrying amount of the dividend payable and the carrying amount of the assets distributed should be recognised in profit or loss or in other comprehensive income.